Special needs beneficiaries (often children) are those that need extra care because of a disability, such as autism, cerebral palsy, mental retardation, or other physical or mental condition. Many Australian parents have children with special needs and know all too well about the extra care they require, the government benefits they rely on, and the financial challenges they face.
Many families with special needs children need to rely on Medicare and Centrelink to help with the high cost of health care. This financial support can continue throughout the child’s life. Parents and grandparents of special needs children and adults may want to provide for their disabled loved ones in their Will but they do not want to risk losing the child’s eligibility for public benefits. A Special Disability Trust is the answer.
A Special Disability Trust (sometimes called a Special Needs Trust) allows a person with a physical or mental disability to have assets held in a particular type of government-approved trust and those assets will be excluded from consideration for purposes of qualifying for certain government benefits.
Expenses that can be paid for by the trust may be such items as special medical aids & equipment, medical & dental needs, medication, accommodation, entertainment & transportation needs.
Parents or other family members of disabled individuals who want to provide for a disabled beneficiary can establish a Special Disability Trust as part of their own estate plan and then that trust will be established upon their death.
Sometimes fear or uncertainty can lead parents to refrain from properly planning the necessary care for their children. Special needs children generally have significant financial needs, including medical, residential and mental health care costs, which have increased dramatically in recent years.
Parents of special needs children have several fears. These often include loss of government benefits; placing the financial burden of caring for the special needs child on a sibling; reduction in inheritance for the special needs child due to taxation issues; and being unable to provide an inheritance to their non-disabled children and grandchildren.
Parents can sometimes become paralysed with indecision when confronting the dilemma of who will provide those resources after the parents are deceased? Leaving assets outright to another individual for the purpose of caring for the child entails other risks, including divorce, bankruptcy or fiscal mismanagement, that might preclude proper delivery of those assets.
A Special Disability Trust represents a significant planning opportunity for parents of special-needs children. Centrelink permits the assets of a disabled person to be placed (without endangering benefits) into such a trust if it is created by a third party such as a parent, grandparent or Court.
Funding for a Special Disability Trust can come from multiple sources, such as discretionary contributions (while parents are alive), probate distributions, a living trust, pension plan or other sources. Life insurance on a parent or care-giver is a practical and frequently-used funding vehicle, due to its flexibility and ability to create an “instant estate” at a relatively low cost. Indeed, this may be the only means by which the family can afford to provide adequate security after the death of the parents. This may become important in case government funding is reduced or eliminated, or the child otherwise becomes ineligible for government assistance or if government care is not desired.
Life insurance is also a means of providing some confidence to the parent in determining how their child’s expenses will be paid after their death. The life insurance proceeds can be kept out of the taxable estate of the parents and provide full benefit to the special needs beneficiary.
The drafting of the Wills and Special Disability Trust requires an experienced attorney and will need life-long monitoring. A responsible trustee should be appointed to ensure that the child’s needs are met and that he or she continues to qualify for all the benefits available.
Many parents lie awake at night, wondering what will happen to their special needs children when they will no longer be around to take care of them.
Instead of worrying, parents can be proactive and establish a Special Disability Trust.
Instruct a senior lawyer who specialises in estate planning. It is also a good idea to have the special-needs beneficiary assessed by Centrelink, to be sure it is within the boundaries of the law. Laws can vary from time to time, so be sure to find a lawyer with experience in this area of law, and make it legal by putting it in writing – don’t just tell family members of your wishes, or the money won’t be protected and who is to say that your wishes will be carried out the way you expect?
With a little planning, you will soon be able to sleep nights again.
SPECIAL REPORT “Special Disability Trusts in South Australia”
Enjoy this article?
Check out the full report containing Special Disability Trust in South Australia from senior Australian lawyer Rod Genders.